China To Allow Free Currency Trade -- Eventually

September 4, 2003|By Joseph Kahn The New York Times

BEIJING — Treasury Secretary John Snow and his Chinese counterparts agreed on Wednesday that China should eventually allow its currency to trade freely on international markets, but Beijing rejected calls to move quickly in that direction, saying it might cause financial instability in China and abroad.

Snow faces political pressure at home to push China to raise the value of its currency, the yuan. Some Democratic presidential candidates and industry groups have argued that China keeps the currency deliberately undervalued to promote exports to America, which they claim has caused job losses in the United States

Last year, China had the largest trade surplus with the United States of any country, at $103 billion, even though it runs only a modest surplus in its global trade.

After a two-day visit, Snow left China on Wednesday without a specific timetable for addressing the currency issue. But he said Chinese officials had assured him that they would take "interim steps" to loosen restrictions on the country's tightly controlled financial system.

"On the currency issue in particular, I was encouraged to hear a reaffirmation of China's long-standing goal to move toward greater flexibility," Snow said. "I was assured that interim policy steps are now being taken and progress in this area will continue."

China's central bank governor, Zhou Xiaochuan, struck a conciliatory tone with Snow in lengthy comments released by state media. He promised that the value of the yuan would eventually be determined by market forces rather than pegged firmly at 8.3 to the dollar, as it has been for almost a decade.

Zhou also outlined a variety of measures that he said would "allow the market to play a bigger role" in China's financial system in the meantime.

Among the measures are new regulations to allow foreigners to invest in yuan-denominated securities, and corresponding rules that allow some domestic investors to buy securities abroad. Snow said that the two sides discussed ways to make it easier for Chinese individuals and companies to buy American stocks and bonds.